FINANCIAL STATEMENT ANALYSIS

Lenovo Group Ltd ADR - LNVGY

Presented by: Kevin Walton

Jodeesa Hamilton
Ryan Hinds

Lenovo Group Ltd ADR - LNVGY

OVERVIEW AND HISTORY

Lenovo is one of the world's leading personal technology companies, producing innovative PCs, smart phones,
tablets, smart TVs, servers, workstations and storage.

1984 - Legend Holdings was formed with 200,000 RMB (US$25,000) in a guard house in China.

1988 Company was incorporated in Hong Kong and would grow to be the largest PC company in China.

1992 ThinkPad, the industrys first notebook is created with integrated CD-ROM

1997 ThinkPad with a DVD-ROM is introduced which is also the first of its kind in the industry.

2000 The 10-millionth ThinkPad notebook PC is shipped.

2004 - Legend Holdings changed its name to Lenovo (Lenovo-Our Company," 2016).

Lenovo Group Ltd ADR - LNVGY

OVERVIEW AND HISTORY (continued)

2004 - Legend Holdings changed its name to Lenovo.

2005 - Acquired the former Personal Computer Division of IBM, the company
that invented the PC industry in 1981.

2016 54,000 employees in 60 different countries serving customers in more

than 160 countries. Lenovo is headquartered in Hong Kong, with operational
centers around the world, the largest ones being in Beijing and Morrisville, NC.
(Lenovo-Our Company," 2016)

Lenovo Group Ltd ADR - LNVGY

Vision
Lenovos Group Ltd. vision is to create more personal devices people are inspired to own. Lenovo stated that,
a culture more people aspire to join and an enduring, trusted business that is well respected around the world.
This vision guides us in pursuit of our mission to become one of the world's great personal technology
companies.

Lenovo Group Ltd. Plans to achieve these objectives through:

Personal Computers: Lead in PCs and be respected for our product

innovation and quality.

Convergence: Lead the industry with an ecosystem of devices, services,

applications and content for people to seamlessly connect to people and
web content.

Culture: Become recognized as one of the best, most trusted and most
well-respected companies to work for and do business with.

Lenovo Group Ltd ADR LNVGY

Graphs

Lenovo Group Ltd ADR LNVGY

Horizontal Analysis of Comparative Balance Sheets
March 31, 2015 and 2016
Fiscal year ends in March.
USD in millions except per share data.

Assets

Increase
(Decrease)

Current Assets:
Cash and cash equivalents
Short-term investments

2015
$

2,855

2016
$

2,015

Amount
$

Percent

(840)

(29.4)%

185

27

(158)

(85.4)%

Receivables

5,178

4,404

(774)

(14.9)%

Inventories

2,995

2,637

(358)

(12.0)%

Prepaid expenses

1,246

738

(508)

(40.8)%

Other current assets

2,969

3,146

177

6.0%

15,428
2,583

12,967
2,622

(2,461)
39

(16.0)%
1.5%

Accumulated Depreciation
Net property, plant and equipment

(774)
1,808

(1,000)
1,623

(226)
(185)

(29.2)%
(10.2)%

Goodwill

4,924

4,899

(25)

(0.5)%

Total current assets

Gross property, plant and equipment

Lenovo Group Ltd ADR LNVGY

Horizontal Analysis of Comparative Balance Sheets (Continued)
March 31, 2015 and 2016
Fiscal year ends in March.
USD in millions except per share data.

Liabilities and stockholders' equity

Increase

Liabilities

(Decrease)

Current liabilities:
Short-term debt
Accounts payable

2015
$

1,339

2016
$

980

Amount
$

Percent

(359)

(26.8)%

4,662

4,267

(395)

(8.5)%

169

189

20

11.8%

Other current liabilities

10,991

10,324

(667)

(6.1)%

Total current liabilities

17,161

15,760

(1,401)

(8.2)%

1,886

2,505

619

32.8%

Deferred taxes liabilities

201

223

22

10.9%

Deferred revenues

548

533

(15)

(2.7)%

Pensions and other benefits

400

443

43

10.8%

22

26

18.2%

Other long-term liabilities

2,779

2,443

(336)

(12.1)%

Total non-current liabilities

5,836

6,173

337

5.8%

22,998

21,933

(1,065)

Taxes payable

Long-term debt

Minority interest

Total liabilities

(4.6)%

Lenovo Group Ltd ADR LNVGY

Horizontal Analysis of Income Statement
For The Years Ended March 31, 2015 and 2016
USD in millions except per share data.

Increase
(Decrease)
2015
Sales
Cost of goods sold

2016

46,296

Amount

44,912

Percent

(1,384)

(3.0)%

39,614

38,288

(1,326)

-(3.3)%

6,682

6,624

(58)

(0.9)%

1,221
4,185

1,491
4,482

270
297

22.1%
7.1%

Other operating expenses

167

713

546

326.9%

Total operating expenses

5,574

6,686

1,112

19.9%

Operating income

1,108

(62)

(1,170)

(105.6)%

Interest Expense

117

179

62

53.0%

Other income (expense)

(20)

(36)

(16)

80.0%

Income before taxes

971

(277)

(1,248)

(128.5)%

Provision for income taxes

134

(132)

(266)

(198.5)%

Gross margin
Operating expenses:
Research and development
Sales, General and administrative

Lenovo Group Ltd ADR - LNVGY

Liquidity Ratios

Working Capital This is an indicator of whether or not a company can pay its bills. The greater the amount
of working capital, the more likely the company will be able to pay its bills on time

Current assets current liabilities

$12,967,000 - $15,760,000 = $(2,793,000)

Current Ratio This tells you the relationship of current assets to current liabilities. The current ratio
suggests if a business can continue normal business operations. As seen here, compared to the industry ratio,
Lenovo Groups current ratio is weak. It measures the ability to repay current liabilities with current assets.

Current assets/current liabilities

$12,967,000/$15,760,000 = 0.82
Industry average: 1.27

Lenovo Group Ltd ADR - LNVGY

Efficiency Ratios

Inventory Turnover Inventory turnover ratio tells how many times a companys inventory has been sold and replaced during the
year.
Cost of goods sold/average inventory balance
$38,288,000/$2,816,000 = 13.60

Average Sale Period Average Sale Period tells you the number of days needed on average to sell the entire inventory
365 days/inventory turnover
365/13.60 = 26.84 days

Accounts Receivable Turnover Accounts Receivable Turnover ratio is used to measure how quickly credit sales are converted to
cash
Sales/Average accounts receivable balance
$44,912,000/$4,791,000 = 9.4

Average collection period Average collection period ratio determines the average number of days required to collect an account.
365 days/Accounts receivable turnover
365/9.4=39 days

Lenovo Group Ltd ADR - LNVGY

Profitability Ratios

Return On Assets turn on Assets ratio tells you how good the company is at using its assets to make money
Net income/average total assets
($128,000,000)/$26,007,000 = (4.9)

Return On Equity Return On Equity tells you how good a company is at rewarding its shareholders for their
investment. As with ROA, higher is better.
Net income/average stockholder equity
($128,000,000)/$3,542,000 = (36.1)

Profit Margin Profit margin calculates how much of a company's total sales flow through to the bottom line
Net income/sales
($128,000,000)/$44,912,000 = (2.9)

Gross margin percentage Gross margin percentage ratio is a broad measure of profitability. This shows the
ability of the business to earn a profit on their inventory
Gross margin/sales
$6,624,000/$44,912,000 = 0.15%

Lenovo Group Ltd ADR - LNVGY

Financial Leverage Ratio

Debt-To-Equity Measures the amount of assets being provided by creditors for each dollar of assets being
provided by stockholders. As seen here Lenovo is currently financing their assets with more borrowings than
equity.
Total liabilities/shareholders equity
$21,933,000/$3,000,000 = 7.31
Debts to Assets The debts to assets ratio shows that Lenovos assets are funded majorly by debt.
Total liabilities/total assets
$21,933,000/$24,933,000 = 0.88
0.88 = 88%

Lenovo Group Ltd ADR LNVGY

5 year Trend

2016
US $000

2015
US $000

2014
US $000

2013
US $000

2012
US $000

44,912,097

46,295,593

38,707,129

33,873,401

29,574,438

(276,851)

970,967

1,014,195

801,299

582,443

132,276

(134,364)

(196,725)

(169,707)

(107,027)

(144,575)

836,603

817,470

631,592

475,416

(128,146)

828,715

817,228

635,148

472.992

(16,429)

7,888

242

(3,556)

2,424

(144,575)

836,603

817,470

631,592

475,416

Basic (US cents)

(1.16)

7.77

7.88

6.16

4.67

Diluted (US cents)

(1.16)

7.69

7.78

6.07

4.57

Revenue
(Loss)/profit before
taxation
Taxation
(Loss)/profit for the
year
(Loss/profit
attributable to:
Equity holders of the
company
Non-Controlling
Interests

(Loss)earnings per
share attributable to
equity holders of the
company

Lenovo Group Ltd ADR LNVGY

Balance Sheet

Growth/Decline in amounts over five years

2016

2015

2014

2013

(3%)

16%

12%

13%

Total assets

810%

49%

9%

6%

Current assets

(16%)

16%

8%

5%

Total liabilities

(6%)

52%

8%

6%

Revenue

Lenovo Group Ltd ADR - LNVGY

Companys Performance Analysis

For the fiscal year ended March 31, 2016, the Group revenue decreased by 3 percent year-on-year to US$44,912 million, due to
currency fluctuation and the slower PC demand, while the Group was building up the quality of its smartphone business
(Financial Risks, 2016).

The Groups gross profit for the fiscal year ended March 31, 2016 was US$6,624 million, a decrease of 1 percent year-on-year
largely due to the revenue decline, while gross margin increased year-on-year to 14.8 percent. Operating expenses increased by 20
percent year-on-year to US$6,686 million (Financial Risks, 2016).

The Groups net loss was US$128 million, versus net income of US$829 million of last fiscal year (Financial Risks, 2016).

The Group operates in a highly competitive industry which faces rapid changes in market trends, consumer preferences and
constantly evolving technological advances in hardware performance, software features and functionality. It faces aggressive
product and price competition from competitors (Financial Risks, 2016).

Financial risks - The Group is exposed to a variety of financial risks, such as foreign currency risk, cash flow risk, credit risk and
liquidity risks as depicted in the March 31st, 2016 Financial Statements (Financial Risks, 2016).

Lenovo Group Ltd ADR - LNVGY

Investment Analysis

Due to the volatility of the foreign currency market, decrease in demand for pcs, along with aggressive
competition, we would not recommend that any new investments be made into Lenovo Group LTD ADR. It
appears that Lenovo would need to create a new niche in the technology market to increase profits and even after
that, further analysis and a performance review would have to be done prior to recommending for any new
investments be made.

Lenovo Group Ltd ADR - LNVGY

References
Financials. (2016). Morningstar Inc. Retrieved November 14, 2016, from
financials.morningstar.com/balance-

http://

sheet/bs.html?

t=LNVGY&region=usa&culture=en-US
Financial Risks. (2016). Lenovo. Retrieved November 14, 2016, from
www.lenovo.com/ww/lenovo/pdf/report/E_099220160603a.pdf
Our Company. (2016). Lenovo. Retrieved November 14, 2016, from
http://www.lenovo.com/lenovo/za/en/company-history.shtml

http://